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Taking Multi-Sector Dynamic General Equilibrium Models to the Data

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  • Huw Dixon
  • Engin Kara

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Abstract

We estimate and compare two models, the Generalized Taylor Economy (GTE) and the Multiple Calvo model (MC) that have been built to model the distributions of contract lengths observed in the data. We compare the performances of these models to those of the standard models such as the Calvo and its popular variant, using the ad hoc device of indexation. The estimations are made with Bayesian techniques for the US data. The results indicate that the data strongly favour the GTE.

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File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp11621.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 11/621.

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Length: 38 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:bri:uobdis:11/621

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Keywords: DSGE models; Calvo; Taylor; price-setting;

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  1. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 640, Board of Governors of the Federal Reserve System (U.S.).
  2. Dixon, Huw David & Kara, Engin, 2008. "Can we explain inflation persistence in a way that is consistent with the micro-evidence on nominal rigidity?," Cardiff Economics Working Papers, Cardiff University, Cardiff Business School, Economics Section E2008/22, Cardiff University, Cardiff Business School, Economics Section.
  3. Andrew T. Levin & Alexei Onatski & John Williams & Noah M. Williams, 2006. "Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2005, Volume 20, pages 229-312 National Bureau of Economic Research, Inc.
  4. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  5. Rochelle M. Edge, 2002. "The Equivalence of Wage and Price Staggering in Monetary Business Cycle Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 559-585, July.
  6. Juillard, Michel, 1996. "Dynare : a program for the resolution and simulation of dynamic models with forward variables through the use of a relaxation algorithm," CEPREMAP Working Papers (Couverture Orange), CEPREMAP 9602, CEPREMAP.
  7. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(1), pages 147-180, February.
  8. Peter N. Ireland, 1999. "A Method for Taking Models to the Data," Boston College Working Papers in Economics, Boston College Department of Economics 421, Boston College Department of Economics.
  9. Kara, Engin, 2010. "Optimal monetary policy in the generalized Taylor economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(10), pages 2023-2037, October.
  10. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc.
  11. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6112, C.E.P.R. Discussion Papers.
  12. Carlos Carvalho & Niels Arne Dam, 2009. "Estimating the cross-sectional distribution of price stickiness from aggregate data," Staff Reports, Federal Reserve Bank of New York 419, Federal Reserve Bank of New York.
  13. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers, Federal Reserve Bank of Philadelphia 06-5, Federal Reserve Bank of Philadelphia.
  14. Rabanal, Pau & Rubio-Ramirez, Juan F., 2005. "Comparing New Keynesian models of the business cycle: A Bayesian approach," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1151-1166, September.
  15. Dixon, Huw & Kara, Engin, 2011. "Contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized Taylor economy," European Economic Review, Elsevier, Elsevier, vol. 55(2), pages 280-292, February.
  16. Huw Dixon & Engin Kara, . "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Discussion Papers, Department of Economics, University of York 05/04, Department of Economics, University of York.
  17. Jean-Philippe Laforte, 2005. "Pricing models: a Bayesian DSGE approach to the U.S. economy," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.).
  18. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(5), pages 1123-1175, 09.
  19. Coenen, Günter & Levin, Andrew T., 2004. "Identifying the influences of nominal and real rigidities in aggregate price-setting behavior," Working Paper Series, European Central Bank 0418, European Central Bank.
  20. Dixon, H. & Le Bihan, H., 2011. "Generalized Taylor and Generalized Calvo price and wage-setting: micro evidence with macro implications," Working papers, Banque de France 324, Banque de France.
  21. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
  22. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics, EconWPA 0509017, EconWPA, revised 12 Sep 2005.
  23. Alexander L. Wolman, 1999. "Sticky prices, marginal cost, and the behavior of inflation," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Fall, pages 29-48.
  24. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 6(3), pages 1-58, December.
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Cited by:
  1. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Ou, Zhirong, 2013. "What causes banking crises? An empirical investigation for the world economy," Cardiff Economics Working Papers, Cardiff University, Cardiff Business School, Economics Section E2013/3, Cardiff University, Cardiff Business School, Economics Section, revised May 2013.

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